Last year Cleveland Company sold 4,000 units of a product that had a variable cost per...
Last year Cleveland Company sold 4,000 units of a product that had a variable cost per unit of $3 and fixed costs per unit of $2 at this level of production. Cleveland’s profit per unit sold last year was $1.00. If Cleveland can raise its total sales this year to 5,000 units, how much net income could the company expect?
Homework Answers
Company could expect net income of $ 7,000
| Step-1:Calculation of contribution margin per unit at 4,000 units | ||||||
| Profit | 4000 | * | $ 1.00 | = | $ 4,000.00 | |
| Fixed cost | 4000 | * | $ 2.00 | = | $ 8,000.00 | |
| Contribution Margin | 4000 | $ 12,000.00 | ||||
| Units sold | 4000 | |||||
| Contribution Margin per unit | $ 3.00 | |||||
| Step-2:Calculation of net income at 5,000 units | ||||||
| Per Unit | Total | |||||
| Contribution Margin | $ 3.00 | $ 15,000.00 | ||||
| Fixed cost | $ 8,000.00 | |||||
| Net Income | $ 7,000.00 | |||||
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